Positional
monopoly occurs when a retailer is exclusively present in a geographically
defined marketplace. The classic case is that of Higginbothams, the famous
heritage book store that has its book stalls in several railway stations of
India. While books can be purchased anywhere and anytime, the exclusive
positioning of the bookstalls without any competition and the impulse buying by
passengers to spend time in long journeys create positional monopoly for such
bookstalls. Food catering by the sole catering agent of the Indian Railways,
IRCTC, in railway trains is another example. The same can be said of sole
selling shops that are situated in isolated areas, say a ‘kirana’ shop in the
Himalayas!
Positional
monopoly occurs at a product level too. Certain retailers may choose to stock
only one brand of a particular class of products forcing customers to buy that
product as part of a larger bundle of products from that retailer. Similarly,
certain manufacturers may choose to retail their products only through certain
channels (including only e-platforms). Positional monopoly makes customers
forsake their brand loyalty in favour of purchasing convenience or
inevitability. Positional monopoly gets reinforced when the demand for a
product is a natural and integral part of living/social culture and the demand
can migrate from one brand to another easily. Positional monopoly does not,
however, mean that there would be unbounded demand. This blog post attempts a
study of positional monopoly through the case optics of a famous sweet shop of
Chennai, and develop some key management insights.
Sweet tooth
Most Indians
have a sweet tooth. They also have a fascination for ‘branded sweets’ and ‘signature
sweets’. In Chennai, famous sweet houses such as Aggarwal, The Grand Sweets &
Snacks (GSS), Sri Krishna Sweets (SKS), Archana Sweets and Adyar Ananda Bhavan
(AAB) are some of the branded sweet houses, with an amazing array of mouth-watering
sweets. All these houses have their signature sweets, Aggarwal’s Jangri,
Grand’s Fruit Halwa, SKS’ Mysorepa,
Archana’s Badam Halwa and AAB’s Sonepapdi are some such signature sweets.
Of course, in each case, the formidable range of sweets is accompanied by an
equally tasty set of snacks. In this respect, GSS probably is the best known
brand. Like geographic indicators, the sweet houses have their locational
niches in important shopping districts, with distinctive taste profiles.
While the sweet
houses have their proprietary and distinctive tastes and flavours, they have no
monopolistic power. They have their loyal customers but they are substitutable
too. If one were to imagine a situation where only one of these sweet houses
were to be present, it stands to reason that all the demand of the four brands
would flow to the monopoly brand. That is the sweet pulling power of the four
distinctive sweet houses! In recent years, SKS embarked on a store positioning
drive that positioned SKS retail shops in traffic flow spots such as airports
and fuel delivery stations. Of these, SKS sweet stalls in the Chennai airport
are unique and distinctive, and strategically positioned with high visibility.
The ideal situation of ‘positional monopoly’ has thus been secured by SKS. It
thus offers an interesting case study to understand the nuances of positional
monopoly.
Tested taste
SKS sweet
stalls are situated, one each, in the arrival and departure halls of the
Chennai domestic terminal (Kamaraj Terminal). They are small, compact stalls
offering the full portfolio of sweets and snacks, in ready to carry boxes as
well as in open trays for on-the-spot assorted selection and customized
packing. SKS has also made special efforts to cater to the perceived unique
needs of air travellers by offering special multi-product packs and ready to
eat foods as well. Some of these custom packs are not available in downtown
city stalls, presumably. All the products in the airport stalls are served in a
hygienic manner by courteous staff. The stall also provides flexibility to have
packs of just one or two sweets. Customers are even provided with a generous
opportunity to test the taste of different products, a unique customer-friendly
feature of SKS in all its locations!
Given the sweet
tooth that passengers have, the special role sweets play as gifts by travelling
public, the service atmosphere created, and the general demand portability for
sweets across brands, the positional monopoly should have secured a demand of
several thousands of packs to the SKS airport stalls. That is because the
domestic terminal handles 9 million passengers approximately in a year, which
works out to approximately 25,000 passengers per day. In marketing and sales
management, brand recall and footfalls are considered essential to generate
sales. SKS stalls which capture 100 percent eye falls and are grazed by
thousands of walk pasts are ideally positioned for maximal footfalls and hence
for maximal business, reaching up to as many passengers as handled by the
airport, at least in a theoretical sense.
Bitter-sweet position
In contrast to
the above positive indicators of positional monopoly, however, not more than a
couple of hundred packets are possibly sold in each of the SKS stalls in the
airport on a daily basis. The high brand visibility and the excellent product
range of SKS in a uniquely exclusive airport positioning is contrasted,
unfortunately and surprisingly, by weak sales. Applying some general management
and industrial engineering principles, certain factors can be identified for
the bitter-sweet result. Firstly, strategic positioning for effective sales is
more important than visible positioning for branding. The stall in the
departure hall is located near the gates before the check-in counters and
before the security area. Fundamentally, the departing (boarding) passengers
would be in a preoccupation to take boarding passes and in a hurry to undergo
security check rather than purchase sweets in a languid manner. Clearly, if the
sweet stall in the departure hall is located in the pre-boarding waiting lounge
there would be a greater possibility of relaxed purchase.
Similar
positioning issue affects the sweet stall in the arrival lounge too. The
arrival sweet stall is located near the exit gates after the taxi booking
counters. Here again, fundamentally the arriving (homebound) passengers would
be in a preoccupation to get into their cabs once the cab booking is done
rather than purchase sweets delaying the homecoming further. Clearly, if the
sweet stall in the arrival hall is located in the baggage claim area, there
would be a greater possibility of purchase while the passengers wait for their
baggage. To aggravate the issue for the arrival lounge stall, the choice of
sweets is decidedly inferior to what exists in the departure stall. The arrival stall, on the contrary, should
have a much better USP than either the pre-boarding departure stall or even the
city stalls (as the homebound passenger could always think of the city
alternative). The lesson here is that positional monopoly by itself does not
confer any significant advantage unless it is strategically secured and
creatively deployed to be effective.
ML-PL-CL-AL business model
Every business
(in fact, every human endeavour) would have a maximum level (driven largely by
the total customer universe), a potential level (driven largely by customer demand
preferences), a constrained level (in fact, most times self-constrained by
infrastructure and organization!), and an achievable level (which may work best
when it is also aspirational). The case of SKS sweet stall illustrates the
point tellingly. Given that 25,000 passengers pass through the Chennai domestic
airport daily, the potential for SKS is to sell as many as 25,000 packs at
least. However, demand preferences and perceptions on time trade-offs as
discussed above set a potential business level which can be quantified only by
consistent consumer research. This can lead to a figure higher or lower than
the magical 25,000 mark. Let us assume in this case that it would lead to a
potentially lower level of 12, 500 (50 percent of the maximum). Here comes the
catch; most businesses and organizations are not set up to capture even the
potential business; they are self-constrained by their own infrastructural,
operational and organizational templates!
Take the case
of the airport sweet stall. Combining both the departure and arrival stalls, it
has four dispensing and billing customer sale points. The stall itself can
accommodate only two queue lines, keep in mind also that every customer would
have luggage with him or her, making the queue lines complex and making it
difficult for more people to join. Each selection by the customer from the look
to delivery through all the steps of iterative choice, communication, packing,
billing and payment takes on an average five minutes. As a result, every five
minutes four packs can be delivered (because we have four customer points in
the aggregate). Assuming that the stalls are run round the clock 24 hours
(which is not a reality, and also is not relevant as domestic flights do not
operate round the clock), we have 288 slots of five minutes each. Given the
delivery rate of four packs every five minutes, the feasible number of packs
that can be delivered on any day is only 1152, which is 9.2 percent of the
potential daily business and just 4.6 percent of the maximal daily business.
Various other
logistical and behavioural issues would determine if even the constrained
business of 1152 packs can, in fact, be achieved. This could relate to queue
lines not accommodating more than a handful of passengers, mismatch between
flight times and wait times, bunching of flight and people arrivals and
departures, mismatch between customer wants and sweet availability, and the
need for sales personnel to have rest times and breaks. The achievable business
would be clearly lower than 1152 packs, and it is not, therefore, surprising
that the sweet stall manages to sell no more than half of even the
self-constrained demand. Clearly, there could be limitations (imposed by the
airport authorities or the leasing charges) in terms of owning a larger space
that accommodates additional display space, more queue lines and more billing
points. But, the ML-PL-CL-AL Business Model illustrates how the typical
businesses are planned to inherently operate hugely below their maximum
potential and what can be done to bridge such huge gaps.
Ten management lessons
The objective
of the blogpost (and the embedded case study) is not to discuss SKS Sweets per
se, a respected and efficient entrepreneurial institution in its industry,
which is run on professional lines but is to develop certain insights as to how
businesses are unknowingly planned, established and operated not to reach their
full potential (and, in some cases, even to fail!). For all we know, SKS
airport sweet stalls may have been established just to establish brand
visibility and not with business economics in mind. Again, as with all case
studies, quantitative or qualitative factors are less important than the
concepts and insights such analysis brings out. There are several management
lessons that can be gleaned from the case study. Firstly, as illustrated by the
study of positional monopoly, monopoly by itself does not guarantee a maximized
business. Several strategic and operational positioning initiatives are
required to achieve the full potential of even a monopoly.
Secondly, the total
market ecosystem should be thoroughly studied to determine the maximum as well
as other demand levels. The ML-PL-CL-AL Business Model suggested in this blog
post provides a powerful tool for the study. It could be a real eye opener in
terms of what can be achieved.
Thirdly, it is
important to realize that even apparently well-established or well-run
operational models tend to have significant unseen and unknown constraints that
severely limit business realization. Industrial engineering and business
management principles must be utilized for an introspective analysis and improvement
actions. Fourthly, customer connect is a vital factor, whether for physical or
virtual businesses. In this case, for example, a simple repositioning of stalls
could provide higher customer connect and better business while signature
packs, advertised in advance for their features, could minimize the transaction
times. Fifthly, there would always be additional lateral solutions even if
constraints cannot be avoided in toto. For example, the sweet stall can be a
part of an SKS restaurant in the airport. Or, SKS may enter into alliances with
select other food points in other strategic locations of the airport to display
and sell at least the signature SKS packs.
Sixthly, ‘silence’ even in respect
of known institutions and visible brands is not an acceptable marketing option;
active marketing, including market research, is essential for all types of
firms and all kinds of brands. Seventhly, in
today’s context, a networked business can provide a huge competitive advantage.
For example, a departing passenger can be facilitated to log in his product requirement
ahead of his travel which is delivered fresh at the airport neatly packaged as
desired at the time of departure; or, an arriving passenger in a hurry may be
encouraged to leave his request at the arrival sweet stall which is delivered
at his home by one of the city branches nearer to the customer home. Eighthly,
a business maximization approach needs, more than numbers, the right business
and operational insights. As can be seen from this case study, a simple retail
outlet can throw up valuable management lessons. Ninthly, the right business insights would
never develop from complex boardroom models; they result from simple ‘gemba’ (real place) observations by
open minds. And finally, there can never be a limit to improvement; it is a
continuous and perpetual process (‘kaizen’)!
The author feels grateful to Sri Krishna Sweets that their
progressive gesture of a presence in the Chennai airport has inspired the
author to develop a novel approach to study of monopolies, customer connect and
business development, with an integrated and holistic model and present
important management lessons.
Posted by Dr CB
Rao on April 4, 2015
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